It’s your job to help your investors make money. A lot goes into making sure that’s the case, and the stakes are high. There’s a lot to consider and weigh, and that includes how stocks perform seasonally.
Free seasonality charts can simplify the investment process by highlighting trends throughout the year. They can help you zero in on which stocks perform best during which times of the year, providing you and your investors with a more informed buying and selling strategy.
Exactly how do seasonality charts help you buy and sell the right stocks? Here are a few ways seasonality charts can help you figure out your investment strategy.
Know Which Months Underperform
The first thing seasonality charts do is show which months during the year stocks traditionally underperform. For example, you may have heard the popular phrase “sell in May and go away.” In general, gains are earned more often between November and April, while May through October seems to underperform.
The next portion of the old adage says, “Don’t forget to come back in September.” Although it has historically been an underperforming month, things will be gearing up before the end of the year, so it’s a good time to put your money to work on new investment strategies.
Santa Brings Investors Gifts for Christmas Too
Investing in September is often a good strategy because Santa doesn’t forget his hedge fund managers during Christmas time. Buying in September ensures you get in on the action.
Some stocks rise in the days leading up to Christmas, and even into the first few trading days of the new year. It’s unclear exactly why this is the case, but a few guesses include:
- Portfolio adjustments are being made at the end of the year
- The holiday season is a time for optimism in the stock market
- Short-sellers are on vacation
On average, the cumulative return during this time of the year is around 1.6 percent. Regardless of the reason, investing at the end of the year has been a popular strategy for decades.
January Just Doesn’t Have the Effect It Used To
It used to be that investors looked to January to see how the upcoming year would perform. That isn’t necessarily the case today. Within the last 30 years or so, it has been just as likely that the market will fluctuate throughout the year, regardless of January’s numbers.
That doesn’t mean it isn’t worth your time to look closely at your investment strategies during the month of January. It’s much more predictive of small cap stocks. They tend to increase during the month of January while other stocks don’t.
So, why was January such a great predictor decades ago, but not so much today? It’s likely because most people don’t sell at the end of December in order to claim losses on their tax returns like they used to. This lessens the need to purchase in January.
Know Which Stocks Show Seasonality
Although the stock market demonstrates seasonal trends, it can be much more effective to know which specific stocks show seasonality, and which ones don’t.
For example, retail stocks perform well throughout the holiday season, as do banking stocks. Health-related stocks do well after the first of the year when everyone is making their New Year’s resolutions. Some stocks don’t show much seasonality at all, like certain electronics and food brands.
Using seasonality charts can help you determine the seasonality of stocks so you can determine which ones require a long-game approach, and which ones deserve to fly in and out of your portfolio quickly.
If you find that a seasonality chart isn’t helpful, you should instead consider which times, days, and weeks are best for buying and selling stocks. Just make sure you factor in your skill level.
The first 15 minutes in the morning is a great time to buy and sell stocks, but only for seasoned day traders. If not skilled, you could suffer serious losses, so trading after the first hour is complete is recommended.
Understanding seasonality and using seasonality charts can really simplify your investment strategies, saving you time, and ultimately saving you money.
